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Silicon Valley's Latest Threat: Under Armour

This article is more than 8 years old.

This story appears in the October 18, 2015 issue of Forbes. Subscribe

KEVIN PLANK IS GETTING warmer. Sunlight is streaming into Under Armour's New York office, a gym-themed space filled with young designers and racks of neon shirts and stretchy running shorts. Plank, though, is suited in bespoke gray flannel and paying the price. He hops out of his leather chair to a shady couch. We're talking about the future of fitness apps and health-tracking watches and bracelets.

Plank, as he does often, is trash-talking rivals. Most of the technology, he says, is boring and ineffectual, made by fashion-challenged people in Silicon Valley. He chuckles at the irony of technologists dictating fashion for devices. "San Francisco is one of the worst-dressed cities in the world, bar none. ... Doesn't anybody just dress up?"

Under Armour, headquartered in Baltimore, is far from the center of the wearable-tech action, but that market is growing faster than sports clothes. Combined sales of mobile health apps and gadgets are expected to hit $120 billion by 2020. Plank went on a spree to shore up that weakness.

Under Armour spent $150 million on exercise app MapMyFitness in November 2013 and then this February paid $475 million for calorie-counting app MyFitnessPal and $85 million for European fitness app Endomondo.

With 62 million people logging on to one of its apps at least once a month, Under Armour now controls the world's biggest digital health platform. It cost Plank only the equivalent of the last three years of pretax profit.

The list of apparel makers that have successfully made the move into tech is a short one. It has zero names on it. Nokia went from making rubber boots to mobile phones, and look what happened to it. Even almighty Nike dumped its FuelBand in advance of Apple wading in big with its watch.

Plank doesn't care if his apps make a lot of money. He already has plenty. He tried to throw a reported $265 million at Oklahoma City Thunder forward Kevin Durant but was outbid by Nike.

The apps are there to get people to work out more and buy more clothes and footwear. That will always be what matters most to Plank, a 43-year-old self-made billionaire who's been right more often than not by ignoring naysayers.

The squared-off University of Maryland footballer started designing and selling sweat-wicking shirts out of his grandmother's basement in 1996 and built Under Armour into the second-biggest sports apparel vendor in the U.S., after Nike. Its stock is up 16-fold since its 2005 IPO. Sales this year should come in a tad under $4 billion with a stated goal of $7.5 billion by 2018.

Profits have compounded at 21% annually over the last four years, and Under Armour's international growth is still before it. BB&T equity analyst Corinna Freedman says the only thing investors want to know about the $710 million for apps is "how this is going to help sell more shirts and shoes."

Plank fully sympathizes. For years his office whiteboard has read "Don't forget to sell shirts and shoes."

Compared to chasing Nike, this technology thing is hard. In January Under Armour debuted a health-, sleep- and fitness-tracking app called Record. It works with a range of other companies' gadgets and was well reviewed, but with thousands of rival apps available not a great number of people have downloaded it. Plank hopes that will change when a new version comes out in early 2016.

Plank shows FORBES mock-ups of the new interface on his iPhone 6: a large, colorful circle that takes up the screen, with numbers sprinkled across to track steps, sleep and overall "feeling."

The app will power a series of gadgets, including a wristband called the Grip, designed by smartphone-maker HTC, also coming out early next year after being pushed from a spring 2015 launch. And a secret team in Baltimore is weaving sophisticated sensors into future workout shirts. On that, admits Plank, "we're further away than I'd love to be."

The whole market may be further away than he'd like it to be. Apple has reportedly sold only 3 million to 4 million watches, which have yet to establish themselves with the same ubiquitous love as other Apple products.

Fitbit has sold more than 20 million fitness trackers and raised $421 million in a June IPO, but its once soaring shares have since slumped toward the coming-out price. Jawbone delayed the launch of its latest wristband and has a reputation for frequent breakages. All have struggled to win over skeptical consumers.

"I've tried them all," says Plank, taking off his jacket to reveal bare wrists. "I think there's execution issues with all of them. They say you took 8,000 steps yesterday, but they don't tell you what to do with that," he exclaims with furrowed brow. Even the latest health-tracking software from Apple "hasn't been compelling."

Under Armour, he avers, has always been a technology company, its clothing made to serve a function, such as compression shirts that reduce injury risk or synthetic fabrics that remove sweat from an athlete's body or deflect the sun's heat.

"When I tell you it's an Under Armour T-shirt, your question should be 'What's it do?' " Plank leans back on the leather couch, legs crossed. "We're the world's greatest purveyors of apparel and footwear, so shouldn't we make it if it's going to be worn?"

PLANK GREW UP TRYING TO PROVE he was as good as the bigger folks around him. He was brought up in middle-class Kensington, Md., the youngest of five boys. As a teenager he once sold knitted bracelets with his brothers at a Grateful Dead concert, and outearned all of them several times over.

He played football in high school, then walked on as a fullback at the University of Maryland despite his smaller size. He got sick of running around in heavy, sweat-soaked T-shirts and went on a hunt for ones that would stay light and drier. He could sell thousands of them to players like himself.

Plank parked his car in the middle of New York City's Garment District and prowled Seventh Avenue showrooms for the perfect combination of moisture-wicking and stretch. Working from one name to the next up the supply chain, he finally got to the now defunct Guilford Mills plant in upstate New York and later to another mill in Ohio, ordering several hundred shirts to start with.

He started passing them out to former teammates who had made it to the NFL. Players loved them. Plank's wife, college sweetheart Desiree Jacqueline, helped him take orders, which came in at all hours. Plank burned through the $20,000 in cash he'd hustled together from a few other small business ventures and maxed out his credit cards, barely keeping his company afloat while working out of his grandmother's row house in Kensington.

Plank would exaggerate the company's scale to win business, telling one coach who wanted winter shirts that Under Armour had them in stock, before jumping in his car to put in an emergency order for winter shirts. When his first NFL customers asked to visit the office, he took a look around his grandmother's house and suggested lunch at a fancy restaurant instead.

In 1996 his sales totaled $17,000. The turning point came in 1999, when Plank took out a $12,000 half-page ad in ESPN magazine, which led to $1 million in sales that year. Revenue hit $5 million in 2000, then $20 million in 2001 and $50 million in 2002.

Success increased over the next two decades by avoiding style trends and inventing products that enhanced performance. While Nike and Adidas sneakers were showing up at New York Fashion Week, Under Armour was showcasing high-tech Olympic speed-skating suits it had developed with Lockheed Martin.

The digital influence didn't hit until January 2011, when Plank found himself wading through the hordes at the Consumer Electronics Show, the tech industry's biggest annual confab.

All those flotillas of flat-screen TVs, all with the same design and specs--what a waste of engineering talent, he thought. "So these companies all came up with the exact same big idea at the same time?"

Plank imagined skimming 1,000 engineers from companies like Samsung, LG and Sony and busing them to a sporting goods store to see what they would improve. The sports apparel industry wasn't chasing engineers the way it should. "I don't believe we've had smart enough people working in our industry," he says bluntly.

Plank came back to Baltimore, grabbed a version of his first commercial T-shirt, and went to one of his cofounders, COO Kip Fulks. "Find out how you can make this thing digital," Plank told him.

He left his stunned product team to figure out what that meant. "I don't know if he knew what he wanted [the shirt] to do," says Kevin Haley, who oversaw Under Armour's future products. "He just had this vision."

Haley's team had no electronics expertise. "We had a supply chain in textiles, not wires and batteries," he remembers. "It was a massive, massive, massive undertaking." They asked sports-science experts and coaches what their dream sports shirt would do and found most just wanted biometric data.

After three years and with help from Zephyr Technology, a Maryland company that makes body-monitoring tools for NASA and U.S. military special forces, they came up with the E39, a 4.5-ounce compression shirt with a round sensor pack seamlessly bonded to the front. It measured breath and heart rates, skin temperature and acceleration.

In February 2011 college football hopefuls wore the E39 during the NFL's annual scouting series, the Combine, the shirts sending their biometric data to trainers' laptops via Bluetooth as the players raced around cones. Under Armour has supplied the shirt at every NFL Combine since, but its high price meant it was never sold to the public.

Haley won't discuss costs, but a comparable sensor-laden workout shirt from Athos costs $400 today. Plank wanted something in consumers' hands, so in 2013 Under Armour released a scaled-down version of the E39: a $150 black-and-yellow heart-rate strap that measures what it calls WILLpower, a blended metric of heart rate and workout time.

Coming out around the same time as easier-to-wear bracelets from Fitbit and Jawbone, the Armour39 got muted reviews. It didn't track steps or have a website with extra stats or offer the ability to compete with friends. At best it was suited for a niche of hard-core athletes.

"We learned that making hardware was incredibly cumbersome and difficult," Plank admits. "Someone would always be coming out with a better mousetrap."

PLANK DOES 5-MILE RUNS MOST mornings and frequent high-intensity workouts. For about six months in 2013, not long after the heart-rate-strap launch, he tracked his pace and route with iPhone app MapMyRun, part of MapMyFitness. He liked the app, but as with many things he wasn't satisfied. Plank wanted to take photos of the monuments he was jogging past and add them to his route.

He cold-e-mailed the app's founder, Robin Thurston, then CEO of MapMyFitness in Austin, Tex., asking for a phone call. "I didn't know much about Under Armour when he first reached out," says Thurston. They spoke for more than an hour, with Plank offering praise and suggestions.

Two months later Thurston was talking to his bankers about raising money and suggested they might try pitching a sale to Under Armour. Plank's and Thurston's executive teams met at the bankers' office in New York. Thurston, the same age as Plank, told his tale of being a late-bloomer entrepreneur after more than 14 years in investment management. Another underdog, thought Plank, and a jock; Thurston had been a pro cyclist once upon a time.

Halfway through the meeting Plank asked for a break. Out in the hallway he told his team he wanted to bring Thurston to headquarters. They went back into the room.

"You guys should come to Baltimore," Plank said.

"Okay," Thurston replied. "When?"

"Right now."

Thurston got on Plank's Gulfstream jet, and that same day he was at Under Armour's headquarters, agreeing to the sportswear company's first-ever acquisition. "I was excited about his desire to be in technology," Thurston remembers. "It was quite a first impression."

Plank made Thurston his chief digital officer and told him that ultimately he wanted an app that could be a "one-stop shop for your health," a central dashboard that would let him play around with his own health metrics, says Thurston. As with the electric shirt, Plank let someone else work out the practicalities of his vision.

Several months into the job Thurston realized Under Armour could harness its roster of big-name sponsored athletes like tennis star Andy Murray and ballet dancer Misty Copeland to motivate people to exercise.

In March 2014 he recommended they build Record, a hub for your health where you could also get updates from popular athletes. Down the line the app would answer questions about how your diet, activity and sleep might affect the way you've been feeling. It would know you'd slept only six hours the night before and recommend you eat oatmeal that morning.

Within a few months Apple, Google and Samsung were holding big launches for their own digital health platforms. "We need to get bigger a lot faster," Plank told his digital team in October 2014. Under Armour was missing a nutrition tracker, so Plank reached out to the most successful calorie-counting app in existence, San Francisco's MyFitnessPal, also inviting its founding team to Baltimore.

The acquired apps come with millions of loyal followers. Keeping them engaged long term with Under Armour in control is a priority. Plank says the company will consolidate down to two apps three years from now. (The company says there are no immediate plans to merge the apps.) Over time the hope is they become hubs for activity and health, prompting reminders to buy more gear when it's time to do so.

"Forty percent of Amazon's revenue is coming from their recommendation engine," Plank says. "We can make recommendations, too, but based on behavior. 'You're not exercising as much. Do you need a new pair of shoes?' " For instance, a customer from Miami is hiking in Vermont and saving her routes to MapMyHike. "We know she lives in a place like Miami and doesn't have gear for hiking," says Thurston. "We can recommend gear she'll use and potentially deliver to her hotel."

The trick is to make the sales pitches subtle, Plank says. "Brands are about editing. Steve Jobs told my chief competitor [Nike], 'Stop making so much crappy stuff.' " (Ed. note: The correct quote from Jobs to Nike CEO Mark Parker was "Just get rid of the crappy stuff and focus on the good stuff.") Plank's voice rises a little as he relishes the point. "Think about that. Stop with the stupid messages. I don't need a message that says, 'Go on, you can do it today.' What does that mean?!" (Nike couldn't be reached for comment.)

In Denmark, where nearly half the adult population has downloaded Endomondo on their phones, Under Armour is running in-app recommendations introducing Danes to its brand. The new gear-tracker feature on MapMyRun alerts several hundred thousand users that after, say, 600 miles they need new shoes. "Is that advertising?" asks Mette Lykke, the Danish founder of Endomondo. "Or is it a service? It's a little bit of both, if you do it in the right way."

Plank glosses over how all this data science will work together. Under Armour's data-science team, he says, is "massive." (It's a couple of dozen people.) Jawbone has had its people running data-heavy experiments on users for years to figure out the most effective health-related "nudges" to send them.

One project lets wearers of its UP band connect their Netflix queue data so Jawbone's app can suggest which shows lead to the best sleep. Microsoft is also developing smart analytics around its wearable tracker, the Microsoft Band. "We're answering questions such as 'Do I run faster if I sleep more than seven hours?' " says Amish Patel, one of the lead creators of the Band.

Thurston argues that Under Armour's legacy in sportswear tech, and close ties to athletes and sports physiologists, can carry it through this new era. Its apparel has also been getting more popular among women, according to Cowen Group's research, which ties in nicely with MyFitnessPal's mostly female users.

Plank is brimming with self-belief. "[Personal health data] is all completely available right now. It's just all over the place. You know who made it simple?" he adds prophetically. "A football player from the University of Maryland."

The app founders are figuring out how to manage Plank. MyFitnessPal's founder, Mike Lee, who'd turned down several acquisition offers before going with Under Armour, gets random e-mails from his billionaire boss asking why certain app features are buggy. This doesn't seem to bother him. "Kevin is very charismatic," he says with a smile from his office in San Francisco, wearing an Under Armour polo shirt.

Endomondo founder Lykke and Thurston also speak of Plank's intense personality. "You have to have a strong point of view," says Thurston. "If you do he'll listen quite well, and if you don't he'll push you quite hard."

Back in New York, Plank steps out onto the 5,000-square-foot veranda that surrounds his office in Chelsea and looks out over the streets he once traipsed around 20 years ago.

"Isn't this a great city? I mean, how can you not love New York?" he asks before baring his teeth in a huge grin, clearly happier outside. "I love America," he adds, punching the air in front of him like a boxer who refuses to quit. "I love the world!"